To better address slowing growth and rising labour costs, the Singapore Government may make it easier for employers to hire foreign workers by deferring foreign worker levy increases.
According to a report by Citi, as the broad-based foreign worker levy hikes in recent years have proven to be counter-productive, levy increases may be deferred till economic conditions improve or may even be entirely scrapped in Budget 2016.
“An overly sharp increase in foreign worker levies could cause otherwise productive firms to fail. While data have not been disclosed, we suspect the successive rise in FW levy hikes may have accounted for a significant portion of unit labour cost increases since 2010,” Citi said.
With substantial reduction of foreign workers such as offshore and marine engineering, foreign worker levies proposed earlier may no longer be necessary, Citi added.
Citi however emphasised that the Government is unlikely to abruptly reverse its efforts to limit foreign workers share at a third of the workforce.
“The cyclical reduction in labour demand necessitates that the supply of foreign workers be curtailed further to limit competition with locals for jobs. More broadly, a foreign worker levy cut would be too abrupt a signal of reversal from the earlier policy of capping the foreign worker share at one third of the workforce,” Citi said.
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